With power sales and utility profits up despite an average 4% cut in electricity prices over the past year, the Tennessee Valley Authority appears ready to extend its rebate program for its customers into the next fiscal year.
TVA, the nation's biggest public power utility with nearly 10 million customers, has pledged to keep its base power rates stable for the next decade and since last October has provided a 2.5% monthly rate credit to power users that will cut overall utility bills by about $200 million this year across TVA's 7-state region.
TVA President Jeff Lyash said Tuesday he expects to be able to continue the rebate program in next year's budget recommendation that will go to the TVA board on August 18 when utility directors set rates and the budget plan for the fiscal year that begins on Oct. 1.
"I'm optimistic that we'll be able to deliver another performance dividend for our customers," Lyash said during an earnings call Tuesday.
TVA is on pace this year to earn more than $1 billion for the fourth consecutive year even as the federal utility has implemented two rebate programs for its local power companies over the past couple of years to encourage longer-term contracts and to offset the impact of the coronavirus pandemic.
TVA said Tuesday it earned $240 million in net income on power sales of nearly $2.5 billion in the fiscal quarter ended June 30. That was up 4.8% from the same period a year ago.
In the first nine months of TVA's fiscal year, TVA's overall income nearly doubled the previous year when the pandemic hit the economy, rising to $953 million on sales of nearly $7.3 billion.
Electricity sales rose 8.4% in the most recent fiscal quarter compared with the depressed level in the spring of 2020 when the coronavirus pandemic shut down much of the economy and lowered power consumption. TVA's overall revenues in the most recent quarter were relatively flat due to lower power rates offsetting the increase in power sales.
Power sales are up about 5% during the first nine months of the fiscal year and last week's heatwave pushed up TVA's peak power demand above 29,000 megawatts for four consecutive days, including Thursday's power peak that was the highest summertime peak in nearly a decade for TVA.
Where TVA gets its power
In the most recent fiscal quarter, electricity sold by the Tennessee Valley Authority came from:* Nuclear power plants - 43%* Natural gas or oil-fired plants - 18%* Coal-fired plants - 17%* Hydroelectric dams - 8%* Purchased non-renewable - 9%* Purchased solar and wind power - 5%Source: TVA for three months ended June 30, 2021
In its quarterly financial report Tuesday, TVA said the pandemic doesn't appear to be any longer affecting power use in its 7-state region.
"We've seen a rather significant recovery and at this point we're seeing no impacts on the economy (from the pandemic)," TVA Chief Financial Officer John Thomas said. 'Industrial sales, in particular, have been strong."
In the first nine months of TVA's fiscal year, the utility has worked on luring more than $7.8 billion of new investments that will create or retain over 65,300 jobs in the Tennessee Valley.
Lyash said TVA "kept our costs down under budget" to produce a performance dividend that has helped lower power costs. TVA adjusts its rate monthly due to fluctuating fuel expenses, but it has implemented both a 3.1% rebate two years ago for local power companies that sign long-term agreements with TVA and a 2.5% rebate a year ago for all power users as part of a "pandemic relief" rebate.
The pandemic relief and other assistance offered by TVA last year was only promised for one year. Lyash said TVA is still assessing its budget and the board must approve any plans. But with lower interest rates and overall operating and maintenance costs in check, TVA should be able to absorb most of its cost increases it may face with a projected slight uptick in electricity sales and its net income reserves.
Doug Peters, president of the Tennesssee Valley Public Power Association which represents the 153 local power companies that distribute TVA electricity, said TVA should be able to continue or even enlarge the rebates in the next year.
"TVA was able to provide these rebates a year ago when their financial results were good, but they are even better this yeaar so I fully expect TVA to keep its base rates stable for another year and the pandemic relief credit to be extended for at least another year," Peters said.
Thomas said TVA's wholesale power rates are lower today than they were a decade ago.
"Our investments in cleaner and more efficient energy resources, cost reductions and lower debt are helping TVA support the region's recovery now, and contributing to TVA's sustainability for the future," he said.
TVA also announced Tuesday that another one of its local power companies, Cullman Electric Cooperative in Alabama, has signed a 20-year power supply contract with TVA. That brings the total number of local power companies with 20-year exclusive TVA power purchase agreements to 143. Those distributors buy more than 73% of all of TVA's power.
Direct-served industrial customers of TVA have a variety of contract terms and most of the 10 local power companies that have not signed the long-term power agreements, including TVA's biggest distributor at Memphis Light Gas & Power, have 5-year notice requirements before they can buy most of their power from another supplier. MLGW and other distributors such as Volunteer Energy Cooperative and Athens Utilities say their studies suggest they could get cheaper power from another source than TVA in the long run, although there remain transmission and reliability challenges those local power companies are still trying to address.
Lyash called the long-term contracts "a partnership" with TVA customers that many local power companies urged TVA to develop to align the power supplier and power distributor together for the long run. TVA has offered more flexibility for distributors to serve up to 5% of their power load from other sources. But the 20-year rolling contracts effectively ensure the local power companies will remain as TVA's customers for decades into the future.
"This is producing tremendous results with new flexibility projects under construction where local power companies are building some of their own renewable generation to satisfy customer demands," Lyash said. "We have lowered their rates by 3.1% to those who have signed up, but we have always said this is a decision for the local power customer to make. I think in the long-term, of course, I would like to see everyone under this agreement. I think it is making tremendous things possible and I expect to see others will adopt this (long-term contract) over time, when they are prepared to do so."
Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.